Guest Author – Blaine Carver
Imagine yourself opening a new 1,000-piece puzzle you just received for Christmas. You clear the table, set the box to the side, and then look at the picture on the cover of the box.
Why do we study the picture on the box so carefully?
Because you want to know the end goal for which you are striving. You need to envision the final product. Now imagine 1,000 puzzle pieces without that picture on the front of the box! You wouldn’t know where to begin.
Your financial life is comprised of hundreds of different pieces, all of them interconnected with one another. You have decisions regarding income, spending, debt, tax, investments, insurance, charity, and estate planning, to name just a few. A simple question such as “Should I take my Social Security early?” not only affects your cash flow, but has broad ramifications on your taxes, legacy planning, need for insurance, and investment structuring.
Financial decisions aren’t made in a vacuum. The puzzle pieces all fit into one larger picture.
Football and Finance
I love watching football. As with most sports, the head football coach calls the shots. Despite the authority the head coach possesses, he rarely calls the plays. Instead, the head coach relies on an offensive coordinator, a defensive coordinator, a special teams coordinator, and dozens of other staff.
But while the head coach may not throw the ball, tackle the ball-carrier, or even call the plays, his job is crucial. He sets the vision for the team, he strategizes the game plan, he coordinates with his assistant coaches (each specializing in their own niche) and holds his players accountable.
The team may be full of star players, but without an overarching vision, without accountability, and with a lack of coordination and integration between various players & positions on the field, this team is doomed to fail.
Your North Star
In every sphere of life, it’s vital to have a compass. A North Star. In finance, this North Star is a thoughtful, intentional, carefully crafted Financial Plan.
Have you ever observed an expert solving a Rubik’s cube? The first thing they do is pick up the cube, analyze every row and column, and visualize how all 27 blocks integrate. They don’t simply start “going for it”. Fun fact: The world record is 3.13 seconds by Max Park, a California native.
Without a plan, we make decisions that don’t align with our goals. This could manifest in many ways…
- We hear from a friend about a mutual fund with huge growth potential; we purchase it in a taxable account and fail to understand it has a huge embedded tax liability.
- We get spooked by the market, so we move most of our money to cash, not realizing that our cash is earning less than inflation and we are losing purchasing power.
- We desire to spend more time with the grandkids, but we keep working because “the money is too good.” We fail to realize that we already have enough assets & income to support our current lifestyle without continuing to work.
Boeing Benefits
The first portion of my career was spent serving Boeing engineers, managers, and executives. At the time, Boeing provided a generous pension benefit for employees. The pension options were endless. One could choose to…
- Start the pension prior to age 62 and receive an extra $700 every month until age 62 (giving up a small benefit for the rest of his/her life)
- Delay the pension to a later date (in exchange for a higher benefit)
- Take the Single option (higher benefit) or the 100% survivor option (lower benefit but continues for the spouse)
- Forego the pension and rollover a lump-sum into a Traditional IRA for investment
We all desire options, and Boeing had plenty of them. However, I found this left many retirees with their heads spinning. Too many options often leave us paralyzed. This was not as simple as “Do I take the pension now or later?” The decision hinged on estate/legacy goals, investment risk tolerance, tax projections, and life expectancy, all of which need to be put in proper context of a coordinated, integrated plan.
Clarity & Confidence
Think about the life & financial planning considerations of the situations below.
- “I’d really like to have a more flexible job, but I think the reduced income would set us back too far in our retirement savings.”
- “Now that the kids are out of the house, I’m wondering if my husband/wife needs to go back to work to save more for retirement.”
- “I know I have many financial “To-Do” list items… I just don’t know where to start.”
- “I’d like to maximize the sale of my business, but I don’t know where to begin.”
- “I have enough assets to pay for a potential long-term care event, but I don’t know how to properly structure my investment portfolio in light of this.”
All the situations above involve a lack of clarity. When we have a picture of where we want to go along with a plan to get there, all micro-decisions are subordinated to this end goal. Instead of swimming in confusion, we walk in clarity and confidence.
I’ll propose three steps to begin the process.
- Start with your “Why”
Forget finances for a second… your “why” will be one of the most important things you find out in your life. Understand who you are. Understand who you were created to be. Understand where you are trying to go. Take time to think through your values and vision and, just like a Hall of Fame football coach, come up with a game plan. As Proverbs 29:18 says, “Where there is no vision, the people perish…”
- Get your financial house in order
Create a balance sheet, listing your assets & liabilities on a single document. It seems simple, but most people have never done this. Doing so annually does two things… 1.) Brings clarity, which negates confusion, and 2.) Allows you or a professional to diagnose & assess your current circumstances. You won’t get to where you want to go if you don’t know where you currently stand.
- Direct or Delegate?
Decide which phases of your financial life you will direct as the “Head Coach” and which phases you will delegate to a professional. The important point is that you and the relevant professionals understand the goals & vision to which you are striving so the pieces (your investments, taxes, estate plan, cash flow, debt management, etc.) can be coordinated holistically.
It’s Up to You
Reader, you have a choice to make. You can make financial decisions based on the latest fad / FOMO. You can “wing” your financial plan. You can pour your energy into your friend’s hot stock idea, or your brother-who-studied-accounting-in-high-school’s latest tax tip.
Alternatively, you can make your financial decisions with a coordinated game plan. Through vision, planning, and strategy, you will find yourself moving from confusion to clarity, from anxiety to peace, and from fear to confidence.
As Stephen Covey illustrates in his popular book, The Seven Habits of Highly Successful People, “Begin with the End in Mind.”
Blaine Carver
Private Wealth Advisor
bcarver@thebahnsengroup.com
Trevor Cummings
PWA Group Director, Partner
tcummings@thebahnsengroup.com
